Compensatory rate regime under cloud

Aptel might review the rate-setting powers of the Central Electricity Regulatory Commission (CERC). The next hearing is on August 19

On the issue of compensating power producers due to fuel price escalation, the Appellate Tribunal for Electricity (Aptel) might review the rate-setting powers of the Central Electricity Regulatory Commission (CERC).

On July 21, it had upheld the CERC decision of February which allowed the imported coal-based projects of Tata Power and Adani to charge a compensatory addition over the rate for sale of power from the utilities, on account of a rise in the cost of imported fuel.

However, it also questioned on several points whether CERC had any regulatory role in determining rates or any of its components, once a power purchase agreement (PPA) had been signed between a generator and procurer.

The interim order which sought to give financial relief to power producers, said about CERC, "The main question to be considered is whether the Central Commission has a regulatory role in tariff (rate) matters during the tenure of the PPA...also whether the Central Commission was correct in exercising its regulatory role...”

“Such statements are becoming a cause of worry for the sector. CERC has cited past orders of Aptel, saying PPAs are subservient to regulations. If Aptel would raise this issue yet again, it then becomes a chicken and egg scenario,” said a partner in a Delhi-based consultancy.

He said the CERC order also mentioned a Supreme Court (SC) ruling in a 2010 suit involving the Commission and Power Trading Corporation, which said if a regulator makes a new regulation, even older PPAs are supposed to come under its ambit.

If implemented, this would be the second instance in two years that a regulatory body would be stripped of its rights in this regard. In 2012, the Delhi High Court, in its ruling on Indraprastha Gas vs Petroleum and Natural Gas Regulatory Board, held the latter had no jurisdiction to fix market rates or regulate those of city gas distributors. An appeal in the matter is pending before the SC.

Under Section 79(1) (b) & (f) of the Electricity Act, 2003, CERC is entitled to regulate the rates of supply of generating companies either owned or controlled by the central government or one privately owned and having entered into a sale agreement for electricity with more than one state.

Tata’s 4,000-Mw ultra mega power plant at Mundra, Jutch, will sell the power generated to utilities in Gujarat, Haryana, Punjab and Maharashtra. Adani, for its 1,980 Mw Mundra-based project, has signed PPAs with two utilities each in Gujarat and Haryana.

Aptel will pronounce its views on the regulatory powers of CERC with the final decision on the matter of a compensatory rate. The next hearing is on August 19.